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The AIG Bonus Tax: A Terrible Precedent

Just before the weekend, the House passed a bill taxing AIG bonuses at a 90% rate. Many, likely, cheered the move. Fortunately, cooler heads prevailed against the stoked populist rage regarding the issue. Both Representatives Bishop and Chaffetz voted against the bill (Matheson voted for it) and Senator Kyl successfully stalled the bill in the Senate instead of allowing a rushed vote on a terrible measure.

The bill sets an awful, and unconstitutional precedent. First, the precedent set would, essentially, be: Don’t piss off a politician – they now have the power to tax (seize) your income at whatever rate they desire and target you (or your group), personally, to do so. This is especially hazardous to you if the politician (or committee thereof) could be successful in spinning the issue to orchestrate a semblance of populist anger on the issue. Second, by going after the bonuses, many companies would start just paying a salary in order to retain certain employees in an effort to shield themselves from such capricious actions. The problem there is that salaries must be paid regardless of performance while bonuses have the flexibility of stipulating that none will be given if performance criteria is not met. Finally, and most importantly, the measure would violate the US Constitution regarding “bills of attainer” and ex post facto (after the fact) laws:

The text of the Constitution, Article I, Section 9; Clause 3 is “No Bill of Attainder or ex post facto Law shall be passed”. The constitution of every State also expressly forbids bills of attainder.

“I think the president would be concerned that this bill may have some problems in going too far — the House bill may go too far in terms of some — some legal issues, constitutional validity, using the tax code to surgically punish a small group,” said Vice President Joe Biden’s economic adviser Jared Bernstein said on ABC’s “This Week.” “That may be a dangerous way to go.”

I suggest contacting your Senators and asking them to vigorously oppose the bill. It is a terrible, unconstitutional power grab.

Again, this demonstrates exactly why government shouldn’t get in the business of bailing out firms using taxpayer money, especially when doing so in a panic.